In order to keep tax-favored status, elections under an employer's cafeteria plan must stay in place for the entire plan year. The IRS does allow elections to be changed for certain approved reasons. These reasons include changes during the open enrollment period, for a qualifying change in status event, for a special enrollment event, and for certain other mid-year events recognized by an employer’s cafeteria plan.
What is a qualifying change in status event?
An employee may be able to change a benefit election mid-year if the employee experiences a qualifying change in status event and properly completes the election change process within 30 days of the event. Change in status events apply differently for each benefit paid with pre-tax dollars through a cafeteria plan. All changes to benefits made as a result of a qualifying change in status event must be consistent with the event, the underlying plan rules, and the employer’s rules.
A qualifying change in status generally includes a change in
- legal marital status, including marriage, divorce, death of a spouse, legal separation or annulment;
- number of dependents, including birth, adoption, placement for adoption or death of a dependent;
- the employee, spouse’s or dependent’s employment status affecting eligibility that is a termination or commencement of employment, a strike or lockout, a commencement of or a return from an unpaid leave of absence, or a change in worksite;
- the employee, spouse’s or dependent’s employment status that causes the employee, spouse or dependent to become or cease to be eligible for a benefit offered under the plan, which may include a change between full-time and part-time employment;
- a dependent’s eligibility for coverage under a benefit offered through the plan because of the attainment of a particular age, a change in student status, or other similar event;
- a change in the employee, spouse’s or dependent’s residence or worksite (primarily a factor for HMO service area); or
- With respect to any benefit offered through the Plan, a qualifying change in status in accordance with the rules, if any, described in the applicable underlying plan document.
An employee will be permitted to change benefit elections only if the change is on account of and consistent with the change in status event. If a requested change is not consistent with the event, the change will not be permitted.
The election change will generally be effective not earlier than the date of the properly completed election change process, unless the qualifying change in status is also a special enrollment event.
What is a Special Enrollment Event?
A special enrollment event enables an employee to enroll him/herself or a dependent for coverage under a specific benefit package option of the Plan (limited to only medical benefits). The following events are special enrollment events:
- Marriage;
- Birth, adoption or placement for adoption of a child;
- The following losses of other health coverage:
- If the other coverage is provided under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the exhaustion of such COBRA coverage.
- If the other coverage is not provided under COBRA, the loss of eligibility for such coverage or the termination of employer contributions toward coverage.
- If the employee is not enrolled for coverage under the plan and the employee or dependent either gains or loses eligibility for coverage under Medicaid or a state child health care plan (CHIP).
The eligibility period for special enrollment extends for 30 days from the date of the event, or 60 days from the loss of eligibility or eligibility for assistance with coverage under Medicaid or CHIP. With respect to marriage and birth, adoption or placement for adoption of a child, coverage can be retroactive to the date of the event. For other events, the enrollment is generally effective not earlier than the date the enrollment request is processed and approved.
Are there Other Permissible Mid-Year Change Events?
In addition to qualifying changes in status and special enrollment events, an employee may also change a salary reduction election on account of certain other mid year events recognized by the employer and approved by the IRS. Changes based on these events generally apply to premium payments, only. Changing coverage under flexible spending account plans is limited. Some of these events might include:
- If the cost of a benefit package option you elected under the plan increases significantly during the year, a participant may choose to continue coverage under that option, adjusted for the increased cost, or revoke the election and choose another option that provides similar coverage, if any. (Applies to medical premium payment benefits.)
- Enrollment in a Qualified Health Plan. (Applies to medical premium payment benefits.)
- Reduction in hours that corresponds with the intent to enroll in another plan that provides minimum essential coverage. (Applies to medical premium payment benefits.)
- If coverage under an elected benefit package option under the plan ceases or is significantly curtailed, the employee may revoke an election of the option and elect another option that provides similar coverage, if any. (Applies to medical premium payment benefits AND dependent care flexible spending account plan, if applicable.)
- If a benefit package option offered under the plan is eliminated, the employee may revoke an election of the option and elect another option that provides similar coverage, if any. (Applies to medical premium payment benefits and dependent care flexible spending account plan, if applicable.)
- If a new benefit package option is added to the Plan, an employee may elect the newly added option and make a corresponding election change for similar coverage. (Applies to medical premium payment benefits and dependent care flexible spending account plan, if applicable.)
- If a dependent makes a change in election under another employer’s plan in accordance with the IRS cafeteria plan rules, the employee may change an election in a manner consistent with the dependent’s election. (Applies to medical premium payment benefits.)
- If a qualified child coverage order requires a health plan to provide coverage to a child, the employee may change an election to provide for the coverage. (Applies to medical premium payment benefits, and health flexible spending account plan, if applicable.)
- If a qualified child coverage order requires a spouse or former spouse to provide health coverage for the employee’s child, the employee may change an election to cancel the child’s coverage under the Plan. (Applies to medical premium payment benefits, and health flexible spending account plan, if applicable.)
- If an employee or dependent becomes entitled to Medicare, the employee may change an election to cancel medical coverage paid through the Plan. (Applies to medical premium payment benefits, and health flexible spending account plan, if applicable.)
- If an employee or dependent loses eligibility for Medicare or Medicaid coverage, the employee may change an election to begin medical coverage paid through the Plan. (Applies to medical premium payment benefits, and health flexible spending account plan, if applicable.)
- If the employee was expected to average at least 30 hours of service per week and the employee’s status changes so that the employee is expected to average less than 30 hours of service per week (even if the reduction of hours does not result in loss of eligibility for the plan), the employee may drop group health plan coverage midyear. However, the change must correspond to the intended enrollment (and the intended enrollment of any related individuals whose coverage is being dropped) in other minimum essential coverage. The new coverage must be effective no later than the first day of the second month following the month in which the original coverage is dropped.
- If the employee is eligible to enroll in Marketplace coverage (during an Marketplace special or open enrollment period), the employee may drop group health plan coverage midyear, but only if the change corresponds to the intended enrollment (and the intended enrollment of any related individuals whose coverage is being dropped) in Marketplace coverage that is effective no later than the day after the last day of the original coverage.
Any change event that is used must be recognized by the IRS and permitted under the terms of the employer's plan.
